Overview 1
Catalyst 1
Summary 1
Table of Contents 2
Table of figures 3
Table of tables 4
The UK Consumer Credit Market in 2007 and Future Outlook 5
The UK consumer credit market has continued to decline in 2007 5
Gross lending fell by a further 0.9% in 2007 while balances grew by 5.5% 5
More of the same in 2008 6
Economic growth is forecasted to slow in 2008 and 2009 6
House prices are now falling 7
Analysis by product lines highlights mixed results 8
With the exception of overdrafts and retail finance, all products grew in balances over 2006-07 8
The market share of consumer credit balances taken up by unsecured personal loans grew over the last five years 10
New lending analysis highlights that retail finance and unsecured personal loans were the biggest losers 12
Credit cards consolidated its share of consumer credit gross advances while unsecured loans' market share continues to decline 13
POS finance has continued to struggle in 2007 15
Motor finance saw a revival in 2007 15
Retail finance continues to fade away 20
The UK consumer credit market will remain subdued going forward 23
Datamonitor's forecasting model assesses the relationship of macroeconomic factors with respect to consumer credit products 23
Under the Datamonitor view new lending in the UK consumer credit will fall in 2008 to total £199.0 billion 24
All individual product lines will contract in 2008 24
Under the optimistic scenario, the UK consumer credit sector will expand at a CAGR of 4.1% over 2008-12 26
In terms of individual product lines, retail finance will be the only struggling product line 27
Under the pessimistic scenario, the UK consumer credit market will dip to a low £186.7 billion in 2009 29
All individual product lines will struggle, with retail and motor finance the worst hit 30
Competitive Dynamics in the UK Personal Loan Market 32
A contracting market in 2007 saw major personal loan providers reach lower lending levels 32
Major lenders' new personal loan business levels in 2007 were below 2006 levels 32
Many of the major personal loan providers also experienced a contraction in balances outstanding in 2007 34
Competitive intensity in the UK personal loan market has eased somewhat 36
There are significantly fewer players now operating in this sector 36
Most lenders are focusing on their own customer database to sell personal loans 37
The credit crunch is forcing lenders to review their lending strategies 38
Advertising spend has declined in 2007, as a result of more focus on cross-selling 38
The credit crunch is making the personal loan market less price sensitive 40
Personal loan providers have increased their rate significantly in the space of a year 41
Going forward, bad debt and PPI issues remain a threat to lenders' profitability 43
Bad debt still remains an issue for lenders, although lenders seem to have learnt from their recent experience 43
Nonetheless, overindebtedness continues to remain a concern 44
The future of the PPI sector is still undecided 46
Personal loan providers' profitability will be adversely affected 47
The Rise of Online Aggregators in the UK Consumer Credit Market 49
Online aggregators are a growing phenomenon in the UK 49
Online aggregators generally earn a fee by linking consumers to financial services providers 49
Aggregators earn the core of their revenue in three ways, depending on their business model 49
As the number of Internet users has risen, online aggregators have become increasingly popular 50
Confused.com and moneysupermarlet.com are two of the largest aggregators for consumer credit products 50
moneysupermarket.com focused on consumer credit products when entering the market 50
Confused.com looks to become a significant player in consumer credit, following its success in insurance 51
Aggregators offer a number of acquisition advantages to lenders, but are not problem-free 52
Online aggregators chiefly allow for low-cost and large-scale acquisition 52
But lenders are concerned by aggregators' focus on price and the inability to know their applicants 53
Aggregators' orientation on price means many lenders are unable to portray products in the way they want 53
Lenders can receive too many applications from the wrong kind of customer 54
Customers acquired via this channel yield low profits and offer little cross-sell opportunity 54
Online aggregators have changed the competitive dynamics of the consumer credit market 55
Price competition has increased, giving rise to lower margins for lenders 55
The 'Big Four' players, although reluctant at first, have become active players in this channel too 55
Consumer credit product innovation for aggregator-only distribution is gradually becoming more common 55
In order to stay ahead, lenders have no choice but to embrace this form of distribution 56
It is ultimately in lenders' own interest to work with, rather than against, online aggregators 56
Even in the current difficult consumer credit environment, lenders still need to work with aggregators 56
The online aggregator space still has significant room to grow unless consumer skepticism gets in the way 56
A large number of other players, such as Tesco Personal Finance, have moved into this space 57
Only considerable consumer skepticism can really hamper this channel's growth, but this is unlikely 57
Some aggregators are going into the editorial space and becoming opinion-makers within the industry 58
Aggregators are becoming more sophisticated comparers and need help from lenders to take this further 58
A number of aggregators allow for product differentiation by credit rating, but this is at a beginning stage 58
There is discussion around using customer feedback as a way to rate lenders, but this is a long way off 59
Aggregators are keen to draw up a code of conduct for transparency, which can only be good for lenders 59
Personal Lending Innovations from Abroad 60
Product design: the rest of the world has strived to make the unsecured personal loan a more dynamic product 60
Banks in Dubai offer customers leveraged investment products 60
The Retail Banking Team view 62
Dubai loan products are Shariah compliant 62
The Retail Banking Team view 62
Loan providers are offering a plethora of products that profess to care for the environment 63
The Retail Banking Team view 63
Pricing structure: some French banks charge different interest rates depending on region 63
Crédit Agricole offers a simulation facility for loan payback that accounts for regional differences 63
The Retail Banking Team view 64
Repayment options: lenders from abroad tend to offer much more flexibility with their loan repayment options 64
In Singapore, GE Money's James personal loans offers flexible repayment options 64
The Retail Banking Team view 65
Loan Trimmer provides borrowers with tax savings 66
The Retail Banking Team view 66
Many banks allow customers to redraw their funds 66
The Retail Banking Team view 66
Bundling: unlike their foreign counterparts, UK banks do not tend to bundle products, instead they favor standard cross-selling techniques 67
Bundling products to existing customers is common in Dubai and Australia 67
The Retail Banking Team view 67
Customer segmentation: loan providers are expanding their loan offerings to take account of different consumer segments 67
Loan providers in the French market have a strong focus on providing loans to the young 67
The Retail Banking Team view 68
Loans for RRSP in Canada 68
The Retail Banking Team view 68
Distribution: the use of SMS messages to apply for loans is more advanced abroad than in the UK 69
Turkish banks are offering customers the chance to apply for a loan through their mobile phone 69
Swedish SMS message loan providers have proved popular among the young 69
The Retail Banking Team view 69
New technology: loan providers are gravitating towards social networking sites as the next stage for selling loans 69
Social lending has emerged with the popularity of social networking sites 69
The Retail Banking Team view 70
Financial institutions have started advertising financial products on social networking sites 70
The Retail Banking Team view 71
An Analysis of Consumer Trends in UK Online Personal Lending 73
The Financial Services Consumer Megatrend Framework is a vital tool for analyzing and structuring consumer attitudes and behaviors 73
A Megatrend framework is vital for financial services 73
10 Megatrends that impact the actions and attitudes of financial services customers have been defined 73
Authenticity 73
Comfort 74
Connectivity 74
Convenience 74
Individualism 74
Wellbeing 74
Demographic Complexity 74
Financial Intelligence Complexity 74
Lifestage Complexity 75
Wealth Complexity 75
Lenders are covering most trends to a certain extent; however, there is still plenty of capacity for greater innovation in UK online personal lending 75
Lenders are most commonly targeting Convenience and Financial Intelligence Complexity 75
Despite Convenience being the focus for most loan sites, there are huge missed opportunities 77
There are many ways to target the Convenience Megatrend 77
Financial Intelligence is an important trend, but appears to lack any deliberate targeting 78
More can be done to target Financial Intelligence 78
Lenders use images to convey a sense of Comfort, but they could do more 79
Providers can improve the manner in which they target the Comfort trend 79
Like the Comfort trend, lenders are using images to appeal to the Wellbeing Megatrend 79
The Wellbeing trend can be targeted in a variety of ways 80
Few providers are successfully hitting the Lifestage Megatrend 80
Changes in the traditional Lifestage boundaries are presenting lenders with new opportunities 80
Despite being a strong focus for some sites, Authenticity is another area where improvements can be made 81
There are at least two ways in which lenders can strengthen their focus on Authenticity 81
Most providers are not focusing on Wealth Complexity, but there are ways to rectify this 81
There are other methods that lenders could use to target their offering to Wealth Complexity 81
Lenders offer some coverage of the Individualism Megatrend, but there is room for improvement 82
There are elements of Individualism that lenders have so far failed to exploit 82
There is a disparity in the extent to which lenders cover the Connectivity Megatrend 82
Encouraging consumers to connect with a loan product is difficult, but can be achieved 82
UK lenders do not currently offer products that appeal to Demographic Complexity 83
Overall, HSBC, NatWest and RBS target a wide range of consumer attitudes through the messages on their websites, whereas Abbey has a message that is more focused on the key trends of Convenience and Wellbeing 83
Abbey's functional website places importance on the convenience of its rapid application process and the environment 83
Abbey is targeting customers who place a high value on convenience 83
Abbey is targeting consumers who are seeking higher levels of wellbeing by promoting its rates offering 84
Surprisingly, the bank is one of the few UK lenders to promote a green message through its banking operations 85
Abbey is looking to encourage greater financial intelligence 85
Abbey's efforts to provide comfort for its customers are embodied by its PPI offering 85
The principal message from Alliance & Leicester's website is cheaper loans 85
By promoting its rates, Alliance & Leicester is targeting consumers who fall within the Wealth Complexity trend 85
Alliance & Leicester is also pushing the simplicity and convenience of its offering 86
In order to appeal to the Connectivity trend, Alliance & Leicester uses a panel showing the financial products that other borrowers have taken out 86
Alliance & Leicester promotes a feeling of wellbeing to its customers through claiming that its loans can save money and improve lifestyle 86
Alliance & Leicester's loan calculator may improve financial intelligence 86
A more subtle message is that consumers can take comfort from the bank's PPI 87
Barclays's website is informing consumers of the freedom a personal loan could afford them 87
Convenience is the key message on Barclays's personal loans website 87
Freedom to be individual is another of the website's clear messages 88
Barclays is promoting authenticity by focusing on its achievements 88
The bank's loan matching and PPI provide comfort to consumers 89
Those with greater financial intelligence may be able to get an improved deal with Barclays 89
Barclays targets Wealth Complexity through its repayment matching facility and premier loans offer 89
Connectivity is an advantage for existing Barclays customers because the loan application process is quicker 89
Barclays's suggestions for loan purpose promote the wellbeing aspect of a personal loan 90
The first message that visitors to Halifax's loans website see regards improved management of their finances 90
Improving financial intelligence is the principal message on the Halifax loans website 90
Halifax's message also strongly promotes a sense of wellbeing 90
The Comfort trend is covered by a portfolio of PPI products 90
Convenience is still a fairly strong message for the provider 90
Halifax's rate clarity appeals to the Authenticity trend 91
Halifax targets individualism through its offer of a web dialogue 91
Halifax's smaller loan offer touches upon Wealth Complexity 92
HSBC has a functional website emphasizing convenience for its standard loan offering, but the more interesting layout for its non-standard products reflects their innovation 92
Convenience is the key message from HSBC 92
HSBC is experimenting with innovative ideas which appeal to the Authenticity trend 92
HSBC's four-part PPI offer may appeal to the consumer's desire for comfort 93
The bank appeals to individualism through its professional studies loan 93
HSBC's Professional Studies Loan also targets consumers within the Lifestage Complexity trend 93
Repayment holidays target financial intelligence 94
HSBC suggests what consumers might do to improve their wellbeing 94
The trend towards a sense of connectivity is targeted more in other areas of the HSBC product portfolio 94
Flexiloan hits the Wealth trend 95
Lloyds TSB's use of illustrations gives the personal loans website a more cheerful and colorful feel, which reflects its focus on comfort and wellbeing 95
The Lloyds TSB loans site offers a feeling of comfort 95
Wellbeing is another clear message from Lloyds TSB 96
Convenience and flexibility are also key themes coming from the website 97
Lloyds TSB refers to its achievements in order to appeal to the Authenticity trend 97
The loan repayment holidays offered by Lloyds TSB meet the Financial Intelligence Complexity 97
Lloyds TSB pushes the idea of individualism through its personalized quotes 97
Connectivity is not a key message on the website 97
Nationwide's site is fairly functional and has clear messages on speed and convenience of arrangement 97
The Nationwide website's key message is convenience 97
Nationwide is keen to promote its authenticity credentials 98
Nationwide is targeting improving financial intelligence 99
Nationwide caters for changing wealth through its loan top-up facility 99
The clarity of the website promotes wellbeing 100
NatWest's message focuses on the ease and convenience of getting a loan, although it also hits other messages such as informing consumers 100
Convenience is the principal message of NatWest's website 100
NatWest's website highlights its strength in covering the Comfort trend 101
NatWest appeals to the Connectivity trend by offering favorable terms for existing customers 101
The bank offers favorable terms for those seeking to improve their house, tapping into the Wellbeing trend 101
NatWest's 'exotic' offers tie in with the desire for authenticity 101
The loans website promotes financial intelligence 102
NatWest's products demonstrate some flexibility over lifestage 102
NatWest encourages individualism 102
RBS shares much of the look, feel and focus of its website with NatWest 102
Convenience is the key message from the RBS website 102
RBS is also promoting the comfort factor of its offering 102
RBS appeals to the Connectivity trend through favorable offers to existing customers 102
RBS is appealing to consumers by hinting at how a loan may improve wellbeing 102
RBS promotes its award winning PPI to appeal to the Authenticity trend 103
RBS's private banking website appeals to the other side of Wealth Complexity 104
RBS encourages financial intelligence through its loans calculator 104
RBS does not discriminate on lifestage in its loan offering 104
Chatting with an expert appeals to the need for individualism 104
APPENDIX 105
Supplementary data 105
The UK Consumer Credit Market in 2007 and Future Outlook 105
Competitive Dynamics in the UK Personal Loan Market 107
Definitions 110
General definitions 110
Bank of England base rate 110
Balances outstanding 110
CAGR 111
Consumer credit 111
Gross advances 111
Overdraft 111
Definitions of point of sale motor and retail finance products 111
Motor finance products available at the point of sale 112
Retail finance products available at the point of sale 113
Methodology 114
Forecasting methodology 114
Choice of economic variables 114
Model outputs 115
Bespoke scenario based forecasting 115
Further reading 115
Ask the analyst 115
Datamonitor consulting 115
Disclaimer 115
List of Tables
Table 1: Consumer credit balances outstanding by product, 2003-07 (£m) 9
Table 2: Market share of consumer credit balances outstanding by product line, 2003-07 11
Table 3: Consumer credit gross advances split by product, 2003-07 (£m) 13
Table 4: Market share of consumer credit advances by product line, 2003-07 15
Table 5: New and used car POS motor finance balances outstanding, 2003-07 (£m) 16
Table 6: New and used car POS motor finance gross advances, 2003-07 (£m) 18
Table 7: New car finance gross advances by product line, 2003-07 (£m) 19
Table 8: Used car finance gross advances by product line, 2003-07 (£m) 19
Table 9: Retail finance balances outstanding by product line, 2003-07 (£m) 21
Table 10: Retail finance gross advances by product line, 2003-07 (£m) 23
Table 11: Consumer credit forecasts under a neutral view of the economy, 2007-12f (£m) 25
Table 12: Consumer credit forecasts under an optimistic view of the economy, 2007-12f (£m) 28
Table 13: Consumer credit forecasts under a pessimistic view of the economy, 2007-12f (£m) 30
Table 14: Unsecured personal loan gross lending for major competitors, 2005-07 33
Table 15: Unsecured personal loan balances outstanding and market share for major competitors, 2006-07 35
Table 16: List of unsecured personal loan providers in the UK as per Moneyfacts May 2008 37
Table 17: Typical interest rates of major providers on a £5,000 unsecured personal loan 41
Table 18: Pricing structure for a sample of personal loan providers 43
Table 19: moneysupermarket.com group revenue and operating profit, 2004-06 (£m) 51
Table 20: Revenue and profit for Confused.com, 2004-06 (£m) 52
Table 21: Comparison of repayment rates for an equivalent loan across four different French counties 64
Table 22: Nationwide's and Halifax's house price indices, May 2007-May 2008 105
Table 23: Forecast performance of the consumer credit market drivers under the Datamonitor view, 2007-12f 105
Table 24: Forecast performance of the consumer credit market drivers under the optimistic view, 2007-12f 106
Table 25: Forecast performance of the consumer credit market drivers under the pessimistic view, 2007-12f 106
Table 26: Gross lending market shares for major unsecured personal loan providers, 2005-07 107
Table 27: Advertising spend on personal loans for major providers, 2006-07 108
Table 28: Monthly interest rates on unsecured personal loans 109
Table 29: UK banks' and building societies' write-offs on consumer lending 110
Table 30: PPI gross written premium by product line, 2006 110
List of Figures
Figure 1: Consumer credit gross lending in the UK market has continued to fall in 2007 whereas balances outstanding have continued to grow steadily 6
Figure 2: House prices have been falling in recent months 7
Figure 3: Unsecured personal loan balances rose by 10% over 2006-07 9
Figure 4: Unsecured personal loans has strengthened its market share of balances over the last five years 11
Figure 5: Gross advances for retail finance and unsecured personal loans fell in 2007 whereas the remaining product lines saw a growth 12
Figure 6: Credit cards cemented its share of consumer credit gross advances further in 2007 14
Figure 7: New car finance accounted for the majority of motor finance balances in 2007 16
Figure 8: Gross advances for both new car and used car finance rose in 2007 17
Figure 9: All product lines within retail finance saw a reduction in balances in 2007 21
Figure 10: Gross lending for all product lines of retail finance has been falling steadily 22
Figure 12: Under the Datamonitor view gross advances in the UK consumer credit sector will contract by 3.2% in 2008 24
Figure 12: Under the optimistic scenario the UK consumer credit sector will reach £247.0 billion in gross lending in 2012 27
Figure 13: Under the pessimistic scenario, the UK consumer credit market will grow at a CAGR of 0.4% over 2008-12 29
Figure 14: With the exception of Alliance & Leicester, all major lenders witnessed a fall in business level in 2007 32
Figure 15: All major providers witnessed a fall in market share of personal loan balances outstanding over 2007 34
Figure 16: All major personal loan providers have cut back on advertising spend over 2007 39
Figure 17: Interest rates on unsecured personal loans have risen again in the last couple of months despite a cut in the base rate 40
Figure 18: Barclaycard and Alliance & Leicester are in Moneyfacts' Best Buys table, May 2008 42
Figure 19: Write-offs on unsecured lending other than credit cards fell slightly in 2007 45
Figure 20: The average unsecured consumer debt per UK adult increased further in 2007 46
Figure 21: Lloyds TSB and RBS Group stand to lose the most with the CC's investigation of the PPI sector 48
Figure 22: Mashreq website outlining key features for loans against shares product 61
Figure 23: Screenshot of Facebook Lending Club application 70
Figure 24: Financial service providers regularly advertise on platforms such as Facebook 71
Figure 25: Megatrends by provider ranked in order of strength of message on website 76
Figure 26: Abbey's website informs consumers of when they should be considering, for example, a green loan. It also has a fairly prominent loans calculator 84
Figure 27: Barclays' website emphasizes the convenience of its loans and quality of loan protection 88
Figure 28: Halifax's website gives consumers an indication of the APR range and a loans calculator 91
Figure 29: HSBC's Professional Studies Loan allows flexible repayments 94
Figure 30: Lloyds TSB's website emphasizes what can be done with an unsecured personal loan 96
Figure 31: Nationwide's website has a loan calculator in the middle with panels showing key features 99
Figure 32: Nationwide's summary page shows key product features in a table format 100
Figure 33: RBS's website has a clear loans calculator and images to promote what can be achieved with a loan 103
Figure 34: Point of sale product aggregations used within this briefing 112